Knowing the right person helped Alex Jacobson get funding for his company, TriVida. "I had an introduction to them through my banker. If you're trying to raise venture capital, it's much easier if there's an introduction."
TriVida, a Culver City, Calif., company that sells software to other businesses, is now one of Wellspring's success stories.
"There are a number of angel funds like Wellspring," Jacobson says. "You can approach them but you need a sponsor to be taken in to the process. Even then, you're competing with other people."
Westmont professor David Weston says entrepreneurs will be on the road to making the right contacts by getting immersed in their local business community. "Join the Rotary, Lions, a local trade association that has a speaker every month -- networking is important -- network with the people you play golf with and the people you buy products from. Stay in touch with people, keep them updated," he says.
Or you can buy an introduction
Another avenue to try is investor-matching services. The easiest way to find these companies is by searching the Internet. Companies such as The Capital Network and Technology Capital Network at the Massachusetts Institute of Technology help entrepreneurs and investors find each other. Some companies are dirt-based; others exist only in cyberspace.
Information about the entrepreneur and the venture is entered into a database and matched with potential investors. Many matching services charge both parties a fee and there's no guarantee that either the entrepreneur or the investor have been checked out by the matching service.
One of the more unusual matching services is Money Hunter. It, too, has a database for the more traditional way of marrying an entrepreneur with an investor -- but it also gives the fledgling business owner a chance to go on television and make his or her own presentation on Money Hunt TV. The company says, "Think of it as Jeopardy with a business-minded Siskel & Ebert finale thrown in."
"Contestants" are drawn from applications submitted to the Money Hunter databank. During each show, two or three entrepreneurs are questioned by someone with expertise in the entrepreneur's field. At the end of the show, the expert gives his two-cents' worth on which entrepreneurs have ideas that could be successful.
The company stresses that Money Hunt TV is not a show to get money. It's simply a way to present entrepreneurs who are interested in finding investors. Investors who like what they've seen can call Money Hunt TV to get in touch with the entrepreneur. There's a $20 application fee to be on the show.
The shows are taped at Money Hunter headquarters in Norwalk, Conn., and air around the country on PBS stations. The company's Web site has a link showing what time Money Hunt TV airs in cities around the country.
We know you're excited. What else?
Whether an entrepreneur is looking for an angel investor or a venture capital firm that finances larger amounts, it's important to have a plan. "People who want to strike out on their own are usually very passionate about their project," says Joseph O'Brien of Petra Capital Partners in Nashville, Tenn. "But most don't know how to put a business plan together -- they need to put a lot more in it than why it's such a great opportunity."
O'Brien says the business plan should include information about the management team. "What's their experience? What do they bring to the table that improves the likelihood of success? They also need sound financial projections, a detailed discussion about operational control, how they'd organize the business, a marketing plan, sales plan, manufacturing capacity and a realistic time frame for starting this up," he says.
Wellspring's Julian Chan says business plans tend to be too complex. "The one that survives is the one that executes the best -- the clarity of thought, the degree to which they've tested their assumptions. If there are 10 or 12 steps before profits, the likelihood that they'll be able to complete those steps is very low."
Who's running the show?
Another key element which investors look at, says Petra's O'Brien, is the management team. "There are a lot of people with very good ideas. The key is who can take it and make it a successful business -- who can commercialize it?"
Most angels or venture capital firms will want a significant chunk of the profits -- as much as 25 percent a year -- so the growth rate is very important, O'Brien says. "How quickly is the industry growing and how quickly can our business grow within that industry?"
So what are the hot businesses that angels are anxious to back? Experts say technology is the name of the game these days -- especially Internet technology. After that -- telecommunications, information technology services, and companies that outsource business services -- such as Kinko's.
Entrepreneurs looking for a couple of places to begin a search for venture capital might try the U.S. Small Business Administration's ACE-Net -- Angel Capital Electronic Network -- and vfinance.com, a venture capital resource library. |
